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GST Compliance - A Costly Affair

AUGUST 25, 2016

By Shashank A Kumar, Senior Associate & Meghna Mohapatra, Associate, Lakshmikumaran & Sridharan, Mumbai

WITH the recent passage of the Constitution (122nd) Amendment Bill in the Rajya Sabha on August 3rd 2016, Goods and Services Tax in India is one step away from implementation. One of the important points of discussion and concern is the cost of compliance.

Service Sector

The incremental burden of compliance shall vary for different classes of businesses. The service sector would be worst hit as the benevolence of centralized registration would be taken away. Taxpayer would be required to get registered in every State from where he provides service. The number of filings would increase from 2 to minimum 37 in a year for each registration, considering GSTR-1, GSTR-2 and GSTR-3 are treated as 3 returns. In case Input Service Distributor and Tax Deducted at Source('TDS') registration are obtained in a state, the number could go up by another 24 filings a year for each registration.

The service sector erstwhile was exposed only to the Central Authorities would now have to face the State Authorities as well, leading to increased compliance costs.

Manufacturing Sector

Large manufacturers are already filing monthly Excise, Value Added Tax ('VAT') and Central Sales Tax ('CST') returns and hence the pinch of increased compliance would be felt to a lesser extent. The factory level Excise and VAT registrations within a State can now be consolidated into a single State-wide registration.

The micro and small sector, enjoying Excise Duty exemption up to 1.5 Crore, shall be heavily impacted as the registration threshold has been brought down to 10 lacs as per the Model GST Act. A composition scheme has been proposed for Taxpayers having turnover up to 50 lacs, which provides for quarterly filing of returns. Such composition Taxpayers shall not be eligible for input tax credit and would not be able to issue tax invoices. According to us, not many Taxpayers would wish to remain outside the credit chain. Apart from Composition Taxpayers, quarterly filing relaxation has not been extended to other businesses and hence majority businesses shall have comparatively more filings.

Trading Sector

Traders will have to register in every State from where they carry on operations. The compliance for traders shall double as they currently file only VAT/ CST return. For the first time, traders would have to face the Central Authorities. Duplication of proceedings would surely add to costs.The small traders wanting to be a part of the credit mechanism would face very heavy compliance cost. The Composition scheme may be more attractive to retail traders with low margins as the benefit of staying in credit chain would not justify the additional cost of compliance.

Huge compliance burden has been imposed upon the blossoming E-Commerce sector where Tax Collected at Source provisions would apply.

Input Tax Credit

One area of concern is the online matching of input tax credit and reversal of credit or demand in case of mismatch. This process may turn out to be the most irksome part of compliance. Keeping track of mismatches, tallying the same with books of accounts, accounting treatment of the same and dealing with non-compliant vendors may require a team in itself. Problems similar to TDS return filing in Income Tax may be expected during initial years. With monthly matching of details and GST compliance rating being made available, compliant Taxpayers would surely be preferred as business partners.


Presently, no facility for filing offline returns has been proposed. Small Taxpayers having inadequate infrastructure may find compliance to be difficult and expensive. However, facilities like GST Suvidha Providers and GST Tax Return Preparers may mitigate this problem.

The entire compliance process shall be online only. Hence, accurate integration with the ERPs and accounting packages would make life easy for businesses. It shall be more of a capital budgeting decision for companies to choose the correct IT infrastructure. Proper planning may enable control over compliance activities from a single location.

On the whole, the sheer quantum of data bytes to be uploaded and processed shall increase manifold. Proper investment in IT infrastructure and personnel training shall become the need of the hour.The devil invariably lies in the detail and hence we shall have to wait until the Rules and Regulations are made available. Nevertheless, it is always better to be safe than sorry!!!

(DISCLAIMER : The views expressed are strictly of the author and doesn't necessarily subscribe to the same. Pvt. Ltd. is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission in the articles being hosted on the sites)


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